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Organisations need to adopt more holistic supply chain strategies to deal with a rapidly evolving environment.
In brief
- Trade tensions, wars and extreme weather events are putting severe pressures on global supply chains.
- New regulations along with investor and customer expectations will require organisations to decarbonise their supply chains.
- Boards’ oversight can help Irish organisations to transition to more circular supply chains, facilitating sustainable management of resources.
Supply chain disruptions, which have been a feature of the business landscape for at least the past four years, will likely remain a prominent concern for boards during 2024. Even before the pandemic and the outbreak of war in Ukraine, rising geopolitical tensions had manifested themselves in new barriers to trade in the form of tariffs, quotas, and other restrictions.
The situation has been exacerbated by the conflict in the Middle East. The key Red Sea-Suez Canal global shipping route has been severely impacted by the recent attacks that have had far-reaching implications on the Irish, European, and global economies, resulting in delays and placing upward pressure on already high freight costs. Concurrently, a confluence of factors including wars, rising geopolitical tensions, a revival of trade protectionism and nationalism, as well as heightened inflation and interest rates herald a new era of instability. This period of uncertainty is expected to persist into the foreseeable future.
Climate change related extreme weather events have also taken their toll. A severe drought has seen water levels drop significantly in the Panama Canal that typically carries 5% of the world's maritime trade, thereby impacting global trade flows¹.
Meanwhile, organisations that fall within the scope of the proposed EU Corporate Sustainability Due Diligence Directive (CSDDD) will find themselves having to monitor their full supply chains to identify and mitigate adverse human rights and environmental impacts. Added to that is the need for organisations to disclose emissions along their supply chains under the Corporate Sustainability Reporting Directive (CSRD).
Focus on circular supply chains
In this context, it is becoming increasingly unpalatable to both investors and consumers for organisations to engage in traditional linear take, make and waste production activities. Instead, they are expected to make their processes and supply chains more circular and to minimise waste while increasing the recycling and reuse of products and raw materials.
Time, cost, and quality are no longer the sole determinants of supply chain strategy. While those principles remain important, organisations are responding to geopolitical, regulatory, and other events, as well as changing customer expectations, by adopting a more holistic supply chain strategy.
Today, organisations are seeking to improve the agility and resilience of their supply chains so that they become strategic assets that they can use to achieve key objectives for the business, rather than simply cost centres, according to EMEIA board priorities 2024. This is particularly important in the digital age when more sales are made online and consumers expect their goods to be shipped and delivered quickly.
Boards can work with their management teams to govern an integrated supply chain approach from strategy to cost to resiliency.
Businesses are increasingly turning to technology to achieve these goals whilst at the same time keeping costs under control. Robots that undertake picking tasks in warehouses and control tower solutions that automatically collect and analyse data from across the supply chain can deliver new efficiencies while AI-enabled intermediary technology can organise the delivery of products directly from warehouses to consumers. Drone technology will increasingly come into play for last mile deliveries in the coming years.
Five questions for boards to consider
The board’s oversight of the organisation’s supply chain is critical for integrating operational as well as strategic aspects. The importance of sustainable supply chains has only grown in the past few years. While there is no one-size-fits-all solution, it is imperative for boards to ask the right questions to ensure that management teams take the right steps to achieve the twin goals of sustainability and resilience.
Here are the five questions that boards need to ask:
Key actions boards can take in 2024
The questions need to be supported by actions that can enable boards to help organisations navigate geopolitical challenges to build sustainable supply chains. Boards can play a pivotal role in guiding organisations to build more circular supply chains, encouraging resource efficiency and creating a more resilient business model. They can:
Summary
Supply chains have been strained to breaking point by a combination of factors including geopolitical events, climate change and policy changes. Boards can help their organisations to address this challenge by working with management teams to ensure supply chains are designed to be as resilient and flexible as possible as well as being capable of responding to new policy pressures as they arise.
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